Section 80C: The same investment suggestion cannot prove to be right for every person. Because of this, every person chooses investment options according to his circumstances to save income tax.
New Delhi: Running a family with limited income is a difficult task. For this reason, many people try to save income tax by investing in tax (income tax) saving options. Generally this investment is made according to future convenience.
Section 80C of the Income Tax Act is very important in terms of income tax savings. There are many options under Section 80C of the Income Tax Act in which you can save tax on amounts up to Rs 1.5 lakh through investment.
It is also true that the same investment suggestion cannot prove to be right for every person. Because of this, every person chooses investment options according to his circumstances.
If a person falls in the 30 percent income tax slab after earning from salary or business, then he can save Rs 46,350 in tax liability by investing up to Rs 1.5 lakh only under Section 80C of the Income Tax Act. .
You can also invest more than Rs 1.5 lakh in investment options covered under Section 80C of the Income Tax Act. In terms of tax saving, the tax benefit will be limited to Rs 1.5 lakh only.
Generally, there is a lock-in in all tax saving investments covered under Section 80C of the Income Tax Act. This means that after investing, you cannot withdraw money from them for some time.
Let us talk about some popular investment products for tax (income tax) saving, by investing in which you get the benefit of tax saving under Section 80C.
1. PPF (Public Provident Fund or PPF)
You can get relief in tax (income tax) by investing in a PPF account opened in a bank or post office in the name of your spouse or children. If you invest in PPF in the accounts of your parents or siblings, then you do not get any tax benefit.
PPF account matures in 15 years from the year it is opened. Accordingly, the amount you have invested in PPF in the first year will be locked for 15 years. On the same lines, the second year’s investment in PPF will be locked for 14 years.
Once the PPF account matures, the account period can be extended in a block of five years. This is actually an investment product of EEE category.
This means that there is tax benefit at the time of investment, tax benefit on interest and also tax exemption on withdrawal of amount on maturity. The Union Finance Ministry declares the interest rates on this every quarter.
2. EPF or VPF (Employees Provident Fund/Voluntary Provident Fund)
If you are a salaried employee, then you are already investing in this investment option (PF). Every month, the amount is deposited in your EPF account even before you receive your salary. It is deducted from your salary and deposited in it.
If you check your salary slip, you will know how much you are investing in EPF every month.
If you want to take full advantage of Section 80C of the Income Tax Act, then to get the investment limit of Rs 1.5 lakh, you have to invest only the remaining amount in tax exempt options.
The thing to keep in mind here is that only your contribution to EPF is eligible for tax exemption under section 80C. There is no income tax benefit on the contribution made by your employer to your EPF account.
If you wish, you can also contribute more amount than your mandatory EPF contribution. This contribution can be made in Voluntary Provident Fund (VPF). You can also avail tax savings on this under Section 80C of the Income Tax Act.
3. Equity Linked Savings Scheme (ELSS)
ELSS are actually equity mutual funds with a lock-in period of three years. If you invest in ELSS, you cannot withdraw this amount within three years. Many people also know ELSS as Tax Saving Mutual Fund.
If you are investing in ELSS through SIP, then each SIP installment will be locked for a period of three years. If the first installment of SIP is on 15th April 2018, then the MF unit purchased from it cannot be sold till 15th April 2021. You cannot sell the unit purchased from the second installment of SIP (15 May 2018) till 15 May 2021.
ELSS units have a lock-in of three years. Therefore, you do not have to pay income tax on the profit made on selling the unit.
4. Term Life Insurance (Term plan)
You can avail tax exemption under Section 80C of the Income Tax Act on the amount of premium paid for term life insurance plan.
Term plans actually provide an opportunity to buy a much larger life insurance cover at a very nominal premium. A term plan can provide a cover of Rs 1 crore for a healthy 30 year old at a premium of Rs 7,000-10,000 annually.
To avail tax benefits under Section 80C, you do not need to take a new plan every year. Your annual renewal premium in a policy is also eligible for tax exemption under Section 80C.
5. Unit Linked Insurance Plan (ULIP)
ULIP is a combined form of life insurance plan and investment. For this, a part of the premium paid is for life insurance cover, while the remaining part is invested in a fund for returns.
Tax benefit is available under Section 80C of the Income Tax Act on the entire amount of premium paid in ULIP.
Generally ULIP plans have a lock-in of five years. This means that you cannot withdraw money from the ULIP plan for a period of five years from the date of purchase. Accordingly, your first annual premium will be locked for 5 years. On similar lines, the second premium will be locked for 4 years.
Keep in mind that after investing in ULIP, you cannot withdraw any money before five years. Even if you close ULIP before five years, you cannot withdraw money from it.
Along with this, it is also important to keep in mind that according to Section 80C of the Income Tax Act 1961, if you do not pay the premium for 5 consecutive years then the tax benefit will be withdrawn.
6. Traditional Life Insurance/Money Back Plan
You can also get tax benefits under Section 80C on the premium paid in life insurance or money back plan. There is also a condition that if you do not pay the premium for at least two years, then the benefit of income tax saving will be withdrawn.
One thing that is important to keep in mind about life insurance (ULIP and traditional plans) policy is that your annual premium should not exceed 10 percent of the sum assured. To get the benefit in Income Tax, it is necessary to fulfill this condition. This rule is applicable to policies purchased after April 2012.
Tax relief under Section 80C can be availed only on payment of life insurance premium for self, spouse and children. There is no income tax benefit on premium paid for life insurance of parents and siblings.
7. Five Year Bank Fixed Deposit
This investment option is generally known as Income Tax Saving Fixed Deposit. The tenure of this fixed deposit is 5 years. This means that you cannot encash your investment in such fixed deposits before five years. Income tax has to be paid on the interest received on this.
8. Five years deposit in post office
This income tax saving product under Section 80C is similar to bank fixed deposits. If you encash it within 5 years of investment, the income tax benefit on it will be withdrawn. The interest rate for such deposits is decided every quarter by the Finance Ministry.
The thing to keep in mind is that the interest rate fixed at the time of deposit remains the same on your investment for five years. Changing interest rates have no effect on your investment. Currently this rate is 7.4 percent.
9. National Savings Certificate (NSC)
This has been the favorite investment option of people for a long time for saving tax (Income Tax). Its maturity period is 6 years. No premature payment is possible in this tax saving investment option under Section 80C.
You also have to pay income tax on the interest received in this. However, the interest earned in the initial years is considered investment in NSC and is eligible for tax exemption under section 80C.
According to this, only the interest received in the last year will be considered eligible for income tax liability. The Finance Ministry announces the interest rate for this every quarter. At present the interest rate on NSC is 7.6 percent per annum.
10. Senior Citizens Savings Scheme (SCSS)
Only senior citizens can invest in this scheme. Its maturity period is five years. Partial withdrawal of amount is not allowed even in this option of tax saving under section 80C.
However, you can close the account before five years by paying some penalty. On premature closure of investment in SCSS, all the income tax benefits received by you will be withdrawn. Interest rates on this are also announced every quarter by the Finance Ministry.
11. Tax exemption on home loan principal amount
If you have taken a home loan, then the principal payment of that loan is also eligible for tax benefit under Section 80C of the Income Tax Act.
One condition here is that you cannot avail tax benefit under section 80C on the payment of principal amount for an under construction property. You can avail this deduction only in case the construction work of the house is completed or you buy a ready-to-move property.
Under this provision, tax exemption can also be availed for stamp duty and registration charges paid for purchasing a house. However, tax benefits on payment of such fees can be availed only in the year in which you make the payment.
If you sell the house within five years of the financial year in which you get possession of the house, the income tax benefits given to you will be withdrawn.
12. Relief on tuition fees of two children
You can also avail tax benefit under Section 80C on school/college tuition fees for two children. If you have more than two children, you can claim this for any two children.
The condition for this is that the fees should be paid to a university, college, school or other educational institution located in India.
Tax relief is available only for full-time education. Private tuition, coaching classes or any part-time course does not come under the ambit of tax relief. The expenditure incurred on education for one’s own education or for the education of one’s spouse also does not come under the purview of tax benefits.
13. Sukanya Samriddhi Yojana (SSY)
This scheme, launched under the Beti Bachao-Beti Padhao scheme of the Central Government, is a great option for the girl child. If your daughter’s age is less than 10 years then you can open SSY account for your daughter.
SSY account will mature when your daughter turns 21. You can withdraw money from SSY account for your daughter’s marriage or education.
This is actually an investment product of EEE category. This means that there is tax benefit at the time of investment, tax benefit on interest and also tax exemption on withdrawal of amount on maturity. The interest rate is announced every quarter.
14. Pension scheme of insurance company (Section 80CCC)
If you invest in pension plans of insurance companies, then you can avail tax benefit on Rs 1.5 lakh from this amount. If you surrender the pension scheme before maturity, the amount received from it will be considered as income for that year and you will have to pay income tax on it.
Keep in mind that the total amount for income tax benefit under Section 80C and 80 CCC cannot exceed Rs 1.5 lakh.
15. National Pension Scheme (NPS)/Atal Pension Yojana (APY) (Section 80 CCD)
This investment option is a bit complicated. If you invest up to Rs 1.5 lakh annually in NPS under Section 80CCD(1), then it is included in the benefits under Section 80C.
If you invest up to Rs 50,000 annually in NPS under Section 80CCD(1B), then it is different from Section 80C of the Income Tax Act. You will get the same tax benefits by investing in Atal Pension Yojana (APY).
